Why mandate vacation pay before trying other means? The private sector can be nudged to innovate

By Stanley S. Litow

Jan 11, 2019 | 7:00 AM

New York City Mayor Bill de Blasio delivers his the State of the City speech at the Peter Jay Sharp Theatre in Manhattan on Thursday. (Byron Smith for New York Daily News)

Mayor de Blasio is getting behind passage of a new law mandating all businesses to give their workers two weeks of paid vacation annually. This would benefit many workers, but some suggest that at the same time, it might hurt the wider economy, leading companies to cut jobs and salaries or, worse, relocating to more business-friendly cities.

This begs the question of when and why did employers begin offering their employees paid vacations in the first place? Actually it began in the United States in the 19th century and became more common well over 100 years ago.

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In fact in a survey of large U.S. businesses in 1910, nearly half already offered a week of paid vacation. Unlike the effort by the mayor, it was not legislated, nor regulated. Businesses determined that providing paid vacations was good for employees but also good for business, enhancing productivity and loyalty.

While not every private company in the early 1900s provided paid vacation, it was more common in business than in governments, city, state or federal.

The same is true of two other efforts: retirement income and health coverage. In 1870, Macy’s, an iconic retailer, began offering all of their employees health care, and in 1875, American Express began providing pensions valued at half the final year’s salary to all employees at age 60 who worked 20 years.

Soon hundreds of other companies began those practices.

The same trend has echoed throughout our history, of the private sector initiating policy changes that positively impact workers. In 1920 George Eastman, founder and President of Kodak, gave one-third of all his personal stock to his employees; today that would be about a quarter of a billion dollars and a front page story. Companies giving their employees stock became prevalent in the 21st century.

Over a half-century ago, companies like IBM began providing employees access to child care and senior care for their families and established anti-discrimination practices. In fact, before passage of the Civil Rights Act, IBM opened integrated manufacturing plants in North Carolina and Kentucky. One in Bedford Stuyvesant in Brooklyn opened in the 1960s.

An increasing number of private companies, like Starbucks, Disney and Discover now offer their employees free college tuition, books and student fees.

None of these actions were legislated or regulated. They were done to aid in recruitment and retention of talent and spur productivity and loyalty. And it did.

There are other noteworthy approaches to improving action in the private sector, some of them beginning in New York City. Under Mayor Bloomberg, the city began grading restaurants based upon their safety and cleanliness. That gave prospective customers the option to determine whether to do business with those rated below A, and encouraged restaurants to raise their practices to higher levels to obtain higher grades.

So rather than instituting a hard mandate, could government take other innovative approaches to stimulate and encourage the high levels of business practices by private companies, coupling business and societal benefits? The answer is yes.

Perhaps government could develop a rating scheme for all businesses, not just restaurants, encouraging a range of positive practices that would benefit companies, their employees and society. Companies would get higher grades for building women and minority-owned small businesses into their supply chains, stimulating job growth and diversity.

Businesses could be encouraged to have top-quality labor and environmental practices, including providing workers with time off for parent-teacher conferences. And those that provide employees with matching grants to encourage donations of time and money to local charities would also get a high grade.

Should government legislate and penalize bad business practices and bad behavior? Absolutely. But efforts to raise the bar and get business to adopt best practice can be encouraged via incentives and reward, and not only financial reward but recognition.

The jury is out on whether a city law mandating two weeks of paid vacation might secure new benefits or have unintended consequences. But there just might be a better way.

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Litow is a professor at Columbia and Duke University. He is a former deputy schoolschancellor for New York City and author of “The Challenge for Business and Society: From Risk to Reward?”